A Guide to Honeycomb Credit's Diverse Investment Offerings
Honeycomb Credit started as a platform where local businesses could receive fast, fair capital from anyone in their communities. And it still is! But what’s exciting is that Honeycomb now supports multiple types of investment offerings. It’s easier than ever to diversify your investment portfolio with Honeycomb. From Honeycomb’s core loan offering, to newer equity investments like SAFE agreements, here are some of the supported investment types:
The majority of investment offerings on Honeycomb Credit are debt-based. This takes the form of a loan — you make your investment, then the business owner pays you back with interest over time. At Honeycomb, business owners make payments monthly for a set term (usually 3-5 years), and investors receive quarterly payments throughout the life of the loan.
There are many examples of debt offerings — Balvanera raised $124,000 from 63 community investors, and they are making regular repayments to their investors.
Similar to debt, revenue sharing is an increasingly popular loan where borrowers tie their repayments to the amount of revenue that their business generates over time, rather than a fixed interest rate. When a borrower generates high revenue, their repayment increases – and if revenue dips so does their repayment amount. This can offer flexibility to high-growth or seasonal businesses where revenue projections can be harder to predict. Though repayment streams to investors aren't always predictable, revenue sharing typically offers high rates of return to investors. Investors will be repaid quarterly a percentage of the business's revenue until the investment multiple has been reached.
Digital Dream Labs ran a successful Revenue Share offering, where they raised $131,000 from 19 community investors. These investors benefited from a 1.8x multiple and received their returns ahead of schedule!
For equity raises, an investor will receive a share of ownership in a business. When investing in an equity offering, you are purchasing a number of shares of the business, depending on the price per share. This can differ depending on the business and how many shares it has available for purchase. Unlike debt-based offerings, you will not receive quarterly repayments as you have purchased ownership in the company, rather than lent the business money. The business owner will inform investors directly on any liquidity events.
These are a type of equity financing — but in this case, you are buying future equity in a business. Convertible Notes are a popular way for early-stage companies to raise money in their early funding rounds. A convertible note is a secured loan that converts to stock at the valuation at a Maturity Date. The number of shares of stock you receive is determined at the next qualified financing when the price is set for the stock. Convertible notes are useful because they delay the difficult task of determining how much the startup is worth today. So when the business decides to do an equity raise, you’ll receive your shares of stock based on how much you invested.
“SAFE” Agreements stand for “Simple Agreement for Future Equity”. A SAFE is an investment contract between a startup and an investor that gives the investor the right to receive equity of the company on certain triggering events, like a liquidity event or sale of the company. Unlike traditional equity or convertible notes, a SAFE has no maturity date or accruing interest. Investors receive a right to convert their SAFEs into equity at a lower price than investors in any future funding rounds.
The price for the future equity purchase is determined in two different ways— Post-Money Valuation Cap, or a SAFE with a discount rate.
Post-Money Valuation Cap is the maximum price at which you’ll convert a SAFE note into equity in the future. So whatever you invest in a SAFE that has a valuation cap, that is the percentage of ownership you’re locked into when the company is ready to seek equity.
Discount Rate is what it sounds like — your investment locks you into a discounted rate for price per share when shares become available. The discount in a SAFE is used as a way to address the higher risk of investment when investing in an early-stage startup.
Ready to start investing? You can visit invest.honeycombcredit.com to learn more and see all of our live investment offerings. While you’re here, sign up for our newsletter (we won’t spam you, don’t worry) and stay up-to-date on how you can invest local.